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Discrepancies in Financial Reports Submitted by the California Department of Parks and Recreation

Discrepancies in Financial Reports Submitted by the California Department of Parks and Recreation

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Published by: jon_ortiz on Jan 04, 2013
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Report of Investigation into Discrepancies in Financial ReportsSubmitted by the California Department of Parks and Recreation
By Thomas M. Patton, Deputy Attorney General
California’s Natural Resources Agency issued a statement on July 20, 2012, advising that preliminary investigation into finances at the Department of Parks and Recreation “has revealedthat for at least 12 years the department underreported tens of millions of dollars to theDepartment of Finance.” The statement also advised that, as of the Parks Department’s “mostrecently reported balances,” the Department of Finance (DOF) was unaware of $20,378,000 inthe State Parks and Recreation Fund, and $34,492,000 in the Off-Highway Vehicle (OHV) Fund.It has since been continuously reported that the Parks Department “has been sitting on nearly $54million in surplus money for at least 12 years.” This report, based on extensive investigation,concludes that the amount of funds intentionally undisclosed is much more limited.This investigation found no evidence of intentional or systematic failure to disclose OHVfund monies to the DOF, including the $34 million described as having been under-reported tothe DOF at the close of fiscal year 2010-11. Instead, the evidence indicates that the historicallyerratic and at times significantly disparate OHV fund balances reported to the DOF and StateController’s Office (SCO) are largely attributable to the timing and methodology of reporting avariety of multi-million-dollar events to those two control agencies. Examples of such eventsinclude large appropriations and deductions, followed by budget report reimbursements, for land purchases not consummated, multi-million-dollar loans of OHV monies to the general fund, anderrant infusions in the 2010-11 and 2011-12 fiscal years of millions in fuel excise tax dollarslater corrected and reclaimed by the Legislature. In four of the past nineteen years, such eventshave evidently resulted in anywhere from $20.5 to $35.1 million more OHV dollars being
-reported to the DOF when compared to balances reported to the SCO.This investigation has yielded no evidence that any OHV monies were ever intentionallyhidden. Instead, as the DOF has noted, these discrete fiscal events have contributed tosignificant disparities in OHV fund reports dating back to the 1990s.
2The systematic non-disclosure to the DOF of millions in State Parks and Recreation Fund(SPRF) monies for the past 15 years is a different story. The disparity in SPRF balances reportedto the DOF and SCO, and the resulting amount unreported to the DOF, grew consistently from$5.5 million in 1996 to a high of $29.2 million in 2003. The unreported amount thenincrementally declined the next four years, from $29.2 to $20.2 million, and from 2007 to the present has remained close to $20 million. Those SPRF monies, and how they came to exist,grow, partially contract, and be kept hidden from the DOF, are the focus of this report.Based on interviews with 40 current and former state employees, and relateddocumentation, the evidence indicates the disparity in SPRF year-end balance reports began andgrew unintentionally during a challenging financial tracking and budgeting period from 1995 to2003, resulting in far fewer dollars being reported for budget purposes to the DOF. During thefirst five years of this period, 1995 to 2000, the Department was engaged in a performance-based budgeting project, which reportedly entailed the added complexity of operating dual financialtracking and budgeting programs. This may be at the root of SPRF budget reporting errors that began around 1996. The growing disparity in SPRF balance reports may have been exacerbatedin 2000 when Proposition 12 added $1.364 billion in funding for California’s parks, including$519 million for capital improvement projects. The backup documentation for the SPRF budgetfund condition statements submitted to the DOF over those past 16 years would be required to pinpoint precisely what caused the balance disparities, and it is unknown whether such materialremains available. Thus, the original cause or causes of the SPRF balance disparities may never  be fully understood. Regardless of its origins, the fact that the Department’s budgeting manager,with assistance from her peers in accounting, set out in 2001 to study and understand thedisparity strongly suggests that non-disclosure of SPRF monies to the DOF was not originallyintended.It is clear, however, that by no later than 2003, and perhaps as early as 1999, the failureto accurately report all SPRF monies to the DOF became conscious and deliberate. The factsshow that former budget officer Becky Brown noticed the growing disparity as early as 1998.By late 2002, when the discrepancy in SPRF balance reports had reached $26.8 million, the budget and accounting officers and their supervisor, Tom Domich, then-manager of fiscalservices, were all aware of the discrepancy. Thereafter, from 2002 to 2012, numerousindividuals failed to take appropriate action to ensure the monies were revealed to the DOF. The
3 primary reason consistently given for not doing so was fear that the Department would see itsalready-reduced general funding cut further if the extra monies in the SPRF were revealed. Theembarrassment expected to result from revealing the funds was another motivating factor. Somewitnesses attempted to shift responsibility by noting that the correct SPRF balance was alwaysreported to the SCO. Throughout this period of intentional non-disclosure, some Parksemployees consistently requested, without success, that their superiors address the issue.Ultimately, Aaron Robertson arrived as head of the Department’s administrative servicesdivision and recognized his duty to report the matter up the chain of command, both within andoutside the Department. Until then, no one had been willing to report the matter beyond their supervisors. Instead, people have consistently followed the directions of those above them thatthe fund balance disparity would not be disclosed to the DOF.Conclusively identifying everyone who knew of the funds and gave orders that they not be reported to the DOF is difficult. Reports that former director Ruth Coleman knew of thefunds are unreliable. One such assertion was attributed in media reports to Cheryl Taylor.Taylor stated during her interview in this investigation that the assertion was speculation. Two people, Rob Boriskin and Manuel Lopez, state that they believe they explained the situation andexistence of disparate SPRF fund balance reports to Coleman, but are uncertain whether and towhat extent she understood. What is apparent, however, is that by no later than 2003 then-financial services manager Tom Domich was informed about what was then approaching $29million in undisclosed SPRF monies. This is evident from the testimony of former accountingofficer Freda Luan-Dun, who states that she and Domich and then-budget officer Becky Brownhad many conversations about the issue. Similarly, former chief deputy Michael Harris statesthat, shortly after he arrived at Parks in November 2003, he received his original briefing aboutthe undisclosed funds from Domich and Brown, and was told a decision had already been madenot to disclose them to the DOF. Domich, however, refuses to acknowledge he was aware of thedisparity in balance reports and the undisclosed SPRF monies.Because Domich denies he knew of the funds, it is uncertain whether he alone made thedecision in 2003 not to disclose the monies to the DOF, or whether he reported the issue to thoseabove him, specifically former administrative services chiefs Denzil Verardo and Ron Brean, or Ruth Coleman, who became acting director in January 2002 and went on to serve as director until July 2012. Verardo, Brean, and Coleman have all stated that they did not know of the

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